Co-op branch deal looks ugly for Lloyds Banking Group

It’s enough to make you wince – Lloyds Banking Group’s sale of its Verde
branches to Co-operative Group truly is a brute of a deal.

Lloyds will receive an up-front payment of just £350m for the branches and a further £400m based on the performance of the combined Verde-Co-op banking business. Short-hand for that – there’s no guarantee that the further payout will even materialise.Photo: Getty Images

I warned you this was a perfect brute of a deal. Well, in a further twist, Lloyds has agreed to underwrite £350m of subordinated debt that Co-op needs to raise to fund the acquisition.

So, if investors decide a Co-operative banking business really isn’t their bag – and a glance at bank shares at the moment makes that all too possible – Lloyds could be left with a whole lot of Co-op debt on its balance sheet.

So why sell? For all its mistakes of the past Lloyds isn’t stupid, it knows full well how ugly this all is. The trouble is it’s got no choice. Europe has ruled the branches must be sold and sold they must be. Whatever the cost.

About the only positive thing to say about this deal is that it finally gets the Verde problem off Horta-Osorio’s desk. Or it should.

There’s a worrying line in Lloyds’ announcement this morning – the deal still needs full regulatory approval.

The way this saga has dragged on, there might be a few surprises around the corner yet.